Key takeaways

  • Safeguarding your private keys is crucial to avoid losing your Bitcoin to hacks, thefts or your own mistakes. As Bitcoin goes mainstream, extra safety tools have become available.
  • Preventing hacks and thefts is the best security solution to protect your Bitcoin. However, for maximum security, hold long-term Bitcoin investments in cold (offline) storage and use multisig services for added protection.
  • Online storage is still the best option for daily Bitcoin use. 
  • The history of Bitcoin thefts is full of crypto exchanges’ hacks. The Mt. Gox and Bitfinex hacks, between 2011 and 2016, lost the exchanges nearly 1 million Bitcoin combined.

After buying Bitcoin (BTC), you should find the best Bitcoin storage solutions for you. Storing Bitcoin means managing and safekeeping the private keys that gain you access to your digital money and allow you to generate the signature necessary to send Bitcoin.

Private keys generate the signatures required to spend Bitcoin. Without them, all the money protected by that key is inoperable. That’s why every investor’s main concern is securing their Bitcoin private keys.

A user can self-custody private keys and recovery seed phrases. This means they directly store them using methods we will discuss. There are also custodial methods for those who don’t want to take responsibility for their own keys.

When choosing a Bitcoin storage solution, consider your needs. Balance security and convenience with the amount of Bitcoin you’re storing. Here’s an overview of Bitcoin security tools that will help you protect your investment.

Did you know? Nearly 4 million Bitcoin is estimated to have been lost forever. This reduced dramatically the total circulation supply from 21 million to roughly 17 million, thus making Bitcoin even scarcer.

Common Bitcoin storage mistakes to avoid

Losing your private keys means you lose access to your digital assets. It is, therefore, vital to know what the most common crypto storage errors are and how to avoid losing Bitcoin due to human error.

Here are some common Bitcoin storage mistakes to avoid: 

  • Not backing up private keys or seed phrases: Failing to back them up means you could lose access to your assets permanently.
  • Storing large amounts in online wallets: Keeping significant amounts of Bitcoin on exchanges or web-based wallets makes it more vulnerable to hacking, phishing and exchange mismanagement.
  • Poor password management: Weak passwords give online attackers easier access to Bitcoin wallets.
  • Not updating software: Outdated software is more vulnerable to hacker attacks, and neglecting it may increase the chances of losing your Bitcoin.
  • Sharing sensitive information: Avoid sharing any sensitive information — especially seed phrases — with others or online. Doing so may lead to a loss of funds to predators seeking such mistakes.
  • Storing seed phrases digitally: Never store sensitive information on digital devices or in the cloud, as they could become vulnerable to digital theft, data corruption or loss.

How do seed phrases, private keys, and wallet addresses connect

How to safeguard your Bitcoin

Many methods can secure your Bitcoin wallet from hackers. Each has pros and cons, including trade-offs in convenience. Write down your seed phrase and safely store it to recover your assets if you forget your wallet’s PIN or password.  

Here are the most popular Bitcoin storage methods to learn how to protect Bitcoin from hackers.

Hardware wallets

These are physical devices, typically a USB drive, that secure your private keys offline. Avoiding online connections will minimize the risk of hacking for the best security. They can store keys, generate addresses, and sign transactions. When buying a hardware wallet, check the manufacturer’s authenticity. It must be unique and from the original producer. This will help you avoid compromised devices that may steal your Bitcoin. 

Software wallets

Apps or programs that run on your computer (desktop wallets) or smartphone (mobile wallets). These platforms are more intuitive than hardware wallets. However, they are also more vulnerable to hacks and malware if the wallet is compromised.  

Features like Google two-factor authentication (2FA) can boost wallet security. Users must, however, ensure their 2FA isn’t saved on cloud services. Since there’s no end-to-end encryption for the codes on Google Cloud, users must disable the sync with those servers. 

To disable Google 2FA sync with the cloud, follow the following steps: 

  • On your device, open the Google Authenticator app.
  • Click on your profile photo.
  • Tap “Use Authenticator without an account.”
  • Tap “Continue.”

Paper wallets

They are a less common form of wallet, but they provide some of the best security nonetheless. They are literally pieces of paper with your wallet’s keys printed or handwritten on them. You can generate them offline using tools like BitAddress or WalletGenerator. Given the perishable nature of paper, users must safely store these wallets away from environmental damage or malicious eyes.

Online wallets (web wallets) 

These are online platforms hosted by third-party services, accessible via a browser. Despite strong security measures, they are less secure than hardware and paper wallets. Their online nature makes them more vulnerable to hacking.

Did you know? In 2014, Mt. Gox declared bankruptcy after announcing it had lost 850,000 BTC. This was about 7% of all Bitcoin in existence at the time.

Cold wallets vs. hot wallets: Which is safer?

The most popular ways to store Bitcoin are cold and hot wallets. They refer to offline and online protection of your Bitcoin’s private keys. As crypto assets gain popularity, people are learning to protect private keys in cold storage. 

Without an internet connection, users cut the risk of malware, spyware and SIM swaps that can steal Bitcoin. Cold wallets are securer than hot wallets but less convenient.

Cold wallets 

Also called cold storage, cold wallets don’t need the internet to function and have far lower risks of being compromised. They store your Bitcoin offline, protecting your private keys from malicious internet attacks. 

Advantages

  • High security: They are not connected to the internet, so they are safe from online hacking attempts, phishing and malware.
  • Offline storage: Since they are offline, they are less vulnerable to cyberattacks, offering maximum protection for long-term storage.

Drawbacks

  • Challenging accessibility: They are more intuitive but may discourage users due to their longer setup. Also, they are unsuitable for frequent trading transactions, so traders prefer online platforms, which are easier to access.
  • Physical risks: If no backups exist, loss, theft, damage or destruction of the device or paper can permanently erase funds.

Hot wallets

Hot wallets are software, usually online platforms, that stores your keys. They need the internet to work, which raises the risk of attacks. In recent years, hot wallet security has improved, and the industry has seen fewer attacks. However, it’s important to know what the risks are in using hot wallets. 

Advantages

  • Convenience: Hot wallets are great for quick, regular transactions and trading, as users have instant access to their funds.
  • Easy to use: Their intuitive interfaces make them easily accessible even to less tech-savvy users.

Drawbacks

  • Lower security: An internet connection is required, so attacks such as malware, hacking and phishing are more likely.
  • Exchange risks: Other than being compromised with malicious attacks, an exchange platform is vulnerable to bankruptcy.

Which wallet is safer?

In summary, cold wallets provide better security for protecting assets. However, you must take precautions to avoid losing your Bitcoin private keys. Cold storage is the top choice for investors with large Bitcoin holdings due to its enhanced security. Hot wallets are usually the best for frequent trades and transactions.

Best practices for storing Bitcoin safely

Owning Bitcoin means users should take full responsibility for their assets and “be their own bank.” Learning the best practices will help them secure assets with an increasing number of Bitcoin storage tips available for long-term investors. 

Here are the top Bitcoin security tools for crypto investors:

  • Backup: Regularly back up and test your Bitcoin wallet’s private keys. This ensures you can recover your Bitcoin if your computer fails. This is when you start your wallet for the first time and safely record your recovery phrase. Back up the seed phrase at multiple secure, offline locations. 
  • Seed phrases: Seed phrases, or recovery or mnemonic phrases, are 12 or 24 randomly generated words. They let you recover your encrypted private keys if you lose access to your wallet. Seed phrases can be stored on metal plates for peace of mind from damage.
  • Software updates: Always use the latest version of a wallet software, as non-updated wallets are easier for hackers to target. The latest version will fix bugs and make your Bitcoin safer.
  • Multisig: Multisignature (multisig) wallets are the best security tool because they require approval from multiple parties to authorize a transaction. This means they need multiple signatures, typically two or three but there can be more. They reduce theft risks, as a single bad actor can’t execute any Bitcoin transaction without the consent of other parties. 

These types of solutions can be set up with trusted people or with third-party services.

Did you know? It is estimated that Satoshi Nakamoto’s large stack of 1.1 million Bitcoin has never been moved since inception. Nobody knows what happened to the private keys, but Tether’s CEO warned that these coins could reenter circulation due to quantum threats.

Recovering lost Bitcoin: What you need to know

Without the private key or recovery phrase, Bitcoin is lost. It is on the blockchain, but it is unspendable. 

Recovering lost Bitcoin is complex and may not work. The best way to deal with the issue is to prevent it by using the secure storage practices highlighted in this article. However, there may be ways to improve your chances. 

Here’s what you need to know: 

  • Professional recovery services like CryptoAssetRecovery.com specialize in recovering lost Bitcoin. They try various password combinations based on your information. This can be costly, and there’s no guarantee of success. Be cautious of scams.
  • Blockchain analysis and tracking may help if Bitcoin is sent to the wrong address by mistake. However, recovering these funds usually requires the recipient to voluntarily return them.
  • Custodial wallets may help you recover access. They can retrieve your account info or reach out to support if you used an exchange.

Ultimately, prevention is the best approach to securing your Bitcoin. Always back up your private keys and recovery phrases, store them securely, and avoid sharing them with anyone.

Written by Emi Lacapra